[ET Net News Agency, 29 March 2018] Nomura assumed coverage of Hua Hong Semiconductor
(01347) with a "buy" rating, and a target price of HK$19.
The research house believes Hua Hong's new 12" fab will drag down GPM and ROE in 2019-20
on rising depreciation, but it should boost long-term growth. Nomura expects 2018-20 EPS
forecasts to grow despite 12" investment, helped by government subsidies.
Beyond the 12" fab project, the tightness of 8" wafer could offer Hua Hong's earnings
upside on potential price hike and improving product mix, shifting to high-margin eNVM and
IGBT/super junction from MOSFET within power semi.
Nomura prefers Hua Hong to SMIC (00981), as its specialty foundry position limits
business risk versus SMIC's aggressive investments in advanced node. Also, its valuation
of 0.7x P/B is more attractive than SMIC's 1.2x. (KL)